Avoiding Disasters: Management of Tailings November 17, 2015 Michael J. Torrance

Presentation Outline

1.  Introduction

2.  Scenario

3.  Risk Implications

4.  Tailings Management and Best Practice

5.  Wrap Up

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Anatomy of a Disaster

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•  Tailings Dam Burst in Latin America

•  Nearby affected squatter community – numerous people missing •  Joint venture – 50% foreign owned/50% state owned •  No emergency response plan for community •  Previous concerns regarding structural integrity, no monitoring program •  Inadequate local regulations or governmental oversight

•  What next?

Crisis Management and Reputational Risk

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Laws, Regulations and International Standards •  Host Country Laws and Regulations

•  Canadian Law o  Enforcing Foreign Judgments in Canada o  Torts for conduct in foreign jurisdictions o  Judicial and Non-Judicial Mechanisms o  CSR Counsellor for the Extractive Sector & OECD National Contact Point

(OECD Guidelines)

•  Access to Capital o  Equator Principles o  World Bank, IFC

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Leading International Standards •  International Standards

– Community Health Safety and Security

–  Emergency Planning

– Hazard Management

–  Inspection, Investigation, Monitoring

–  Pollution Prevention

–  Involuntary Resettlement

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Judicial Developments in Canada •  Litigation developments

o  Seven reported international human rights related tort claims since 1998 o  Four have been filed since 2013 – trend?

•  Key tort law issues courts are determining o  Duty of care (proximity, foreseeability, policy reasons to found international

claims in Canada, role of international standards)

o  Corporate veil and potential liability of Canadian parent for claims against international subsidiaries

o  Enforceability of foreign judgements

•  Law in flux

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International

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Disclaimer Norton Rose Fulbright US LLP, Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP and Norton Rose Fulbright South Africa Inc are separate legal entities and all of them are members of Norton Rose Fulbright Verein, a Swiss verein. Norton Rose Fulbright Verein helps coordinate the activities of the members but does not itself provide legal services to clients. References to ‘Norton Rose Fulbright’, ‘the law firm’ and ‘legal practice’ are to one or more of the Norton Rose Fulbright members or to one of their respective affiliates (together ‘Norton Rose Fulbright entity/entities’). No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any Norton Rose Fulbright entity (whether or not such individual is described as a ‘partner’) accepts or assumes responsibility, or has any liability, to any person in respect of this communication. Any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifications of the relevant Norton Rose Fulbright entity. The purpose of this communication is to provide general information of a legal nature. It does not contain a full analysis of the law nor does it constitute an opinion of any Norton Rose Fulbright entity on the points of law discussed. You must take specific legal advice on any particular matter which concerns you. If you require any advice or further information, please speak to your usual contact at Norton Rose Fulbright.

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Sustainability Standards in Global Finance – Equator Principles III and the OECD Common Approaches February 4, 2015 Michael J. Torrance

Introduction

•  What role does sustainability play in international finance?

•  What are the Equator Principles and OECD Common Approaches and their key elements?

•  How are these international frameworks relevant to the Canadian context?

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Understanding new role of sustainability in international finance – Introductory Example •  Consider Ichthys LNG Project - Darwin Australia

•  $20 billion – limited recourse project finance – involvement of ECAs and EP banks

•  Application of Australian Law and international standards such as IFC Performance Standards for Environmental and Social Sustainability

•  Gap analysis conducted

•  Major due diligence exercise - identify the areas in which the IFC Performance Standards are indeed more stringent than the requirements of Australian law, and then ensure that the ECAs, lenders, project and independent environmental and social consultant were all comfortable with how those gaps would be documented or mitigated through an “Action Plan” to be implemented by the project.

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Understanding new role of sustainability in international finance •  Why was this necessary? What drove this approach?

•  Answer derives from application of Equator Principles and OECD Common Approaches to international finance transactions

•  Promoting adoption of international and domestic sustainability standards through lender due diligence processes

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The Goal - Managing Reputational Risks

•  Example 2: EP Bank Financing hydro-electric dam project in Central America

–  Long history of conflict with indigenous peoples related to project

– NGO begins campaign alleging bank failed to apply concept of Free Prior and Informed Consent (FPIC) of Indigenous Peoples

– Cites case law of the Inter-American Court of Human Rights (IACHR)

– Why is this happening?

– How should we respond?

– How does this relate to the EP?

– What if this project was in Canada?

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Introduction Equator Principles III •  What is it?

–  Agreement amongst 79 (and growing) private lenders –  Similar approach to environmental and social due diligence

•  History

–  2002-2003: Creation and Launch of EP –  2006: EP II –  2011: EP III

•  Voluntary – but once adopted becomes part of corporate governance of Financial Institution

Export Credit Agencies 16

Scope and Threshold - Equator Principles III •  Project Finance and Project Finance Advisory Services

–  US $10 million or more

•  Project-Related Corporate Loans

–  Majority of loan is related to a single Project over which client has control –  US $10 million or more –  Credit agency or financial institution’s commitment is at least US $50 million –  Loan tenor is at least two years

•  Bridge Loans

–  Tenor less than 2 years –  Refinanced by Project Finance or Corporate Loan

•  Applies Globally – including in Canada

Export Credit Agencies

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OECD Common Approaches - Scope and Threshold

•  Scope: all types of officially supported export credits for exports of capital goods and/or services

–  Must have repayment term of 2 years –  Does not apply to exports of military equipment or agricultural commodities

•  Application threshold for categorization and review:

–  Equal to or above SDR 10 million –  Project is in sensitive area

•  Existing project threshold for categorization and review:

–  Equal to or above SDR 10 million

Export Credit Agencies

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Introduction - OECD Common Approaches •  Applies to Export Credit Agencies of OECD States

•  History

–  1998-2000: Statement of Intent on Environment and the Action Statement –  1999: Export Credit Group Agreement on Environmental Information Exchange –  2007: Revised Council Recommendation on Common Approaches –  2012: Recommendation of the Council on Common Approaches for Officially Supported Export Credits and

Environmental and Social Due Diligence

•  Are the Common Approaches Binding?

–  Political commitment

•  But implemented through legislation: see Export Development Act, section 10.1

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Elements of Due Diligence Both instruments recommend similar elements to a framework for project review •  I. Screening and Categorization

•  II. Environmental and Social Review

•  III. Evaluation and Monitoring

•  IV. Disclosure and Reporting

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Elements of Due Diligence

I.  Screening and Classification •  Screen to assess whether project within scope

•  Classification of project into one of the following categories:

– Category A: potential for significant adverse environmental and/or social impacts which are diverse, irreversible and/or unprecedented

– Category B: potential environmental and/or social impacts less adverse than Category A projects. Impacts are fewer in number and site specific, mitigation available and few are irreversible

– Category C: minimal or no potentially adverse environmental and/or social impacts.

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Elements of Due Diligence II. Environmental and Social Review •  Only Category A and B projects are reviewed

•  Benchmarking environmental and social performance against:

– Host country standards (i.e. laws, regulations and permitting requirements)

AND/OR –  International standards:

– World Bank Safeguard Policies –  IFC Performance Standards – Major Multilateral Financial Institution standards –  EHS Guidelines – Other internationally recognized standards

•  Environmental and Social Impact Assessment

– Measures to minimize, mitigate and offset adverse impacts

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Elements of Due Diligence - Applicable Environmental and Social Standards •  Legal and regulatory expectations of host country

–  Threshold determination –  “Designated” Countries, High-Income OECD Countries

•  IFC Performance Standards on Environmental and Social Sustainability

– One: Assessment and Management of Environmental and Social Risks and Impacts –  Two: Labour and Working Conditions –  Three: Resource Efficiency and Pollution Prevention –  Four: Community Health, Safety and Security –  Five: Land Acquisition and Involuntary Resettlement –  Six: Biodiversity Conservation and Sustainable Management of Living Natural

Resources –  Seven: Indigenous Peoples –  Eight: Cultural Heritage

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Special Issues •  Human rights due diligence

–  “Limited High Risk” circumstances – conduct separate due diligence on human rights risks

– Application of Guiding Principles on Business and Human Rights

•  Greenhouse Gases (GHG): –  EP III

–  Alternatives analysis where project releases 100,000 tonnes of CO2 per annum (“all projects in all locations”)

– Monitoring and reporting requirements for projects releasing more than 25,000 tonnes per annum – may be satisfied by regulatory requirements

•  Stakeholder Engagement – (outside of Designated Countries) –  Informed Consultation and Participation (ICP) –  Free Prior and Informed Consent of Indigenous Peoples (FPIC) – Grievance Mechanisms

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Elements of Due Diligence III. Evaluation and Monitoring

•  Environmental and Social Management System

–  Management Program –  Action Plan –  Iterative process

•  Covenants and Contractual Language

–  Regular reporting from borrower –  Compliance with Action Plan –  Decommissioning plan –  Legal compliance by borrower

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Elements of Due Diligence III. Evaluation and Monitoring

•  Monitoring and Independent Review

–  Independent Monitoring

–  Appointment of Independent Reviewer by Lender – Ongoing Post-Financing Obligation (back end)

–  How far does it go? Until loan re-payed? For life of Project?

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Elements of Due Diligence IV. Disclosure and Reporting – Project Requirements

• Project information

–  Project name –  Location –  Description

• Environmental and Social Impact Information

–  Mandatory ESIA (or summary thereof) disclosure

• GHG Emissions (EP III):

–  Reporting of emission levels – over 25,000 encouraged, over 100,000 required

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Due Diligence Elements IV. Disclosure and Reporting by Lenders

• Common Approaches:

–  Category A and B projects –  Exchange of information with other members –  Emissions reporting –  Exchange of information on IFC Performance Standards –  Human rights issues

• Equator Principles:

–  Annual report of transactions having reached Financial Close and implementation of principles –  Minimum reporting requirements –  GHG Emissions: Alternatives Analysis, Quantitative Reporting

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CSR Strategy for the Extractive Sector •  Established by Government of Canada in 2009

– Currently being reviewed – release imminent

•  Established CSR Counsellor for the Extractive Sector

•  Endorsed International Standards –  IFC Performance Standards – OECD Guidelines for Multinationals –  Voluntary Principles for Security and Human Rights – Global Reporting Initiative

•  “CSR” also referenced in Canadian trade agreements – i.e. Peru FTA

•  Seeing a trend…

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What does all this mean?

•  When involved in financing: – Know who the players are – are there ECAs? Are there EP Banks?

– Know what the applicable standards are likely to be – may go beyond law

– Prepare for lender due diligence process

•  Understand role of international standards along with legal standards – There are numerous standards, but increasing convergence around key international

standards, like IFC Performance Standards on Environmental & Social Sustainability – Some lenders may insist on applying international standards, even in Canada –

remember Ichthys LNG

– Standards may also be endorsed by Government of Canada creating added policy imperative

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Scenario

•  Consider a deal in Canada or other Designated Country: – Know who the players are – are there ECAs? Are there EP Banks?

– Know what the applicable standards are likely to be – may go beyond law

– Prepare for due diligence process of lenders

– What covenants are needed?

– What other diligence (pre and post financing) is required?

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Scenario

•  Consider a deal in a Non-Designated, Developing Country

– Know who the players are – are there ECAs? Are there EP Banks?

– Know what the applicable standards are likely to be – may go beyond law

– Prepare for due diligence process of lenders

– What covenants are needed?

– What other diligence (pre and post financing) is required?

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International

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Disclaimer Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP, each of which is a separate legal entity, are members (“the Norton Rose Fulbright members”) of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself provide legal services to clients.

References to “Norton Rose Fulbright”, “the law firm”, and “legal practice” are to one or more of the Norton Rose Fulbright members or to one of their respective affiliates (together “Norton Rose Fulbright entity/entities”). No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any Norton Rose Fulbright entity (whether or not such individual is described as a “partner”) accepts or assumes responsibility, or has any liability, to any person in respect of this communication. Any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifications of the relevant Norton Rose Fulbright entity. The purpose of this communication is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of any Norton Rose Fulbright entity on the points of law discussed. You must take specific legal advice on any particular matter which concerns you. If you require any advice or further information, please speak to your usual contact at Norton Rose Fulbright.

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